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UN eases concerns over wheat supply squeeze in top exporters


The United Nations downgraded concerns over the prospect of tight wheat stocks in exporting countries next season, thanks to improved harvest prospects in Australia and Russia.


The UN food agency, the Food and Agriculture Organization - which last month cautioned that global wheat stocks held by top shipping countries at the close of 2020-21 would squeeze to their tightest in eight years – on Thursday said that supplies would actually improve over the season.


It raised by 1.0 point to 16.7% its forecast for the level of world wheat stocks helped by the major exporters as of the end of the season, as compared with the draw on those inventories from domestic and trade needs.


Supplies held in major exporters - Argentina, Australia, Canada, the EU, Kazakhstan, Russia, Ukraine and the US – are seen as particularly important for world pricing, in being readily available to import buyers, unlike stocks held in the likes of China.


Australian recovery

A 16.7% stocks-to-use figure would still indicate a relatively squeezed market, with the five-year average at 18.5%.


However, it would represent an improvement from the figure for the close of 2019-20, which was nudged 0.4 points lower to 15.7%.


The FAO said its revisions reflected a hike of 5.5m tonnes to 26.7m tonnes in forecast for Australia’s wheat crop, as harvested late in 2020, “mostly resting on improved yield prospects underpinned by earlier widespread rainfall and favourable weather forecasts for the remainder of the season.


“The buoyant production outlook is based on an expansion in plantings, officially estimated at an above‑average level of 13m hectares.”


EU, UK downgrades

For Russia too, the FAO raised its wheat harvest estimate, by 2.0m tonnes to 79.0m tonnes, noting that, despite some dryness in March and April, “cumulative seasonal rains have been slightly above average, inferring good yield prospects.


“Given that the total area planted with wheat, winter and spring crops, is estimated at a record high of 29m hectares… the aggregate 2020 wheat output is expected at 79m tonnes, exceeding the five‑year average by 7%.”


With a 2.0m-tonne upgrade too to the Indian harvest, “these increases more than offset a cutback to the European Union’s wheat production forecast (‑5.5m tonnes) and the United Kingdom (‑1.5m tonnes) on reduced yield expectations”, the FAO said.


The forecast for world wheat output overall was lifted by 3.2m tonnes to 761.5m tonnes.


The estimate for world stocks was upgraded by 3.5m tonnes to 283.8m tonnes, a rise of 8.8m tonnes year on year, although remaining some 4m tonnes shy of the record set in 2017-18 – and with 138m tonnes of that total held in China.


Barley upgrades

The FAO too raised its forecast for world output of coarse grains, such as barley, corn and oats, in 2020-21, by 5.7m tonnes to 1.519m tonnes.


“Larger outputs of barley in Australia, the EU and Turkey are mainly behind the monthly upturn,” the FAO said, citing too increased expectations for EU corn output.


The comments came as the FAO unveiled the first rise in food prices in five months, of 2.4% for June, despite softness in grain prices amid the improved supply prospects.


“While in cereals and meat markets, most prices remained under downward pressure…. the prices of vegetable oils, sugar and dairy products rebounded to multi-month highs,” the agency said.


“Downward pressure on wheat prices intensified in June, in part due to new harvests in the northern hemisphere, but also due to improved production prospects in a number of major exporting countries, in particular in the Black Sea region.”


‘Palm oil prices rose sharply’

Oils led the increase, with prices soaring 11.3% – their biggest month-on-month gain in nearly a decade.


“International palm oil prices rose sharply in June on account of both recovering global import demand, following the easing of Covid-19 related lockdowns in numerous countries, and concerns over possible production setbacks amid prolonged migrant labour shortages.


“In the case of rapeseed oil, recovering demand from the EU’s biodiesel industry also underpinned prices.”


For sugar, prices jumped by 10.6%, supported by the recovery in oil prices, with the FAO also noting ideas that “bottlenecks in Brazilian ports due to the measures imposed to contain the spread of the coronavirus helped in pushing up [values]”.


Dairy price boost

Dairy prices gained 4.0%, with the agency noting gains in all products included in its sector index, “but not to the pre-pandemic levels.


“Renewed import demand for spot supplies, especially from the Middle East and East Asia, coupled with seasonally declining supplies in Europe and limited availability of uncommitted supplies in Oceania, underpinned the recent price increases.”

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